Tax considerations of the Government’s Coronavirus support initiatives
The Government Coronavirus support initiatives were essential for many businesses to survive the pandemic. However, receipt of the support may have unwanted tax consequences, especially for start-up businesses looking to raise finance under Seed Enterprise Investment Scheme (SEIS). Small and medium sized enterprises (“SMEs”) may also find their ability to claim R&D tax credits under the SME scheme compromised due to EU state aid rules.
A snapshot of the initiatives and their tax implications are summarised in the table below. If you think your businesses may be adversely affected, we are here to help. Contact us here.
As small amounts of aid are unlikely to distort competition, a useful approved EU mechanism for State aid is the industrial de minimis regulation which allows small amounts of aid ie less than €200,000 over 3 consecutive fiscal years, to a single undertaking for a wide range of purposes.
Impact of receiving Covid19 Government Support
*EIS:
Largely no impact except for loans made under Future Fund initiative. Participating in the Future Fund does not qualify for EIS tax relief and may result in an investor losing EIS tax relief on their future equity investments in the company receiving the loans.
SEIS:
SEIS falls within De-minimis State Aid. Receipt of support categorised under De-minimis State Aid will impact the future amount that can be raised under this scheme.
*Loans made under Future Fund initiative do not qualify for SEIS tax relief and may result in an investor losing SEIS tax relief on their future equity investments in the company receiving the loans.
NIC Employment Allowance fell within De-minimis State Aid from 1 April 2020.
R&D:
Rates of SME scheme relief are up to 25% for a profit-making company and 14.5% for a loss-making company. Receipt of De-minis State Aid will reduce the expenditure qualifying for SME R&D tax relief. Receipt of Notified State Aid could potentially render a project only qualifying for relief under the RDEC scheme with 10.5% effective tax relief.
